TD remodels advisor pay plan

Toronto Dominion is remodeling its advisor compensation plan next year.

It will cut cash payouts to low-producing advisors and include new criteria on stock awards to promote cross selling and generate more productive accounts.

TD’s Private Investment Counsel, the full-service brokerage unit of TD Waterhouse, will cut compensation for advisors who bring in between $375,000 and $399,999 in annual commissions and fees, according to a compensation document obtained by Advisor.ca.

Starting next year, those advisors will be paid 20% for all transaction fees or ticket charges they bring in. Currently, they receive 30% to 44% of the ticket charges they generate, with maximum payout given to higher ticket charges.

TD is also adding new criteria for stock awards to reward advisors who can refer businesses to the banking arm and who can keep or increase households that generate $1,000 or more in gross revenue, according to the document. Currently, restricted stock unit awards for advisors are based solely on their 12-month production.

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Amanda Tran, a spokeswoman at TD, declined to discuss the details of the new compensation program. But she said the bank’s compensation structures are “designed to incentivize performance that creates a balance between providing exceptional customer experience, business growth and value to shareholders.”

The document notes the Private Investment Advice unit wants to attain industry-average, pre-tax profit margin by the end of 2015, and be the industry leader by 2017. As of the third quarter that ended July 31, TD’s overall wealth earnings reached $181 million, up from $157 million the same quarter last year.

Many firms have been slashing payout to less productive advisors over the past several years and finding more ways to promote products sales across different business lines. By capturing investment, banking and insurance accounts under one roof, clients’ assets become more tied to the bank, rather than to advisors.

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Most bank-owned retail brokerage houses, such as National Bank Financial, give compensation to brokers when they refer mortgages to the banking side. And ScotiaMcLeod, the retail brokerage arm of Bank of Nova Scotia, tweaked its compensation for advisors several years ago to reward advisors for new asset growth.

“Progressive firms are moving beyond volume and commissions; they are increasingly compensating [advisors] for the quality of their businesses, which includes the depth of the client relationship,” says Doug Trott, president and chief executive of PriceMetrix, a Toronto-based financial research firm. “This is a big shift for the industry.”

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Annual reciprocal referrals to the bank have more than quadrupled over the past eight years, from 2,741 accounts in 2004 to 13,500 in 2012, the document says. And assets under management referred from the banking arm, TD Canada Trust, have ballooned to $25 billion last year from $2 billion in 2004.

Reciprocal referrals are expected to increase under the new advisor payout program starting next year, when:

• 60% of the stock component of advisor payout will be based on meeting minimum production targets;
• 20% will be based on having at least 16 closed referrals with TD Canada Trust or other partners; and
• 20% on meeting certain targets for households that generate more than $1,000 in annual gross revenue, also known as non-stagnant households.

There will also be bonuses of up to 12% of the advisor’s stock award for exceeding referral and non-stagnant household targets under the new compensation program.

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Aside from remodeling its pay grid, TD will also increase the minimum threshold for which advisors can discount clients’ equity trades from $300 to $400.

The bank will also cease paying advisors for every registered account fee collected. The program, according to TD, led to “unintended” outcome of heavy concentration in small and stagnant registered accounts. Around 60% of the firm’s 18,000 single account households at TD are now RRSP accounts, according to the compensation document.

“We now have aligned ‘pay for performance’ to strategy,” states the compensation document. “We want your practice, on average, over time, to grow faster and be more productive and profitable than our competition.”

More to come on compensation changes in the industry.

Evelyn Juan is a Toronto-based financial journalist who writes about the wealth management sector. Follow her @evelynjuan on Twitter.